How Companies Can Decrease Transportation and Logistics Costs - Research Paper Example

Introduction: In today’s era, when the whole world has become a global village, the bridging of all the communication as well as trading gaps, along with all the advantages, has also presented with it a set of new found challenges for all the organizations. Along with just considering the customer base as the sole profit earning entity, other commodities have also been proved to be a vital part of the profit and stability earning equation of the companies. The requirement of the time has made the organizations to restructure their strategy as such that it, along with keeping in mind the quality management aspect of the organization, also focuses on finding the best prices for the company as well as the clients while keeping in check the cost containment factors involved. There are goals as these that push the organizations to go beyond the traditionally set ideas, to go for even more betterment and to aim higher towards achieving maximum efficiency. When it comes to the logistics and transportation side of the costs for the organization, we see that the logistics basically comprise of warehouse inventory, managing stock and freight transportation etc. Logistics basically comprise of moving the inventory from its origination to its final destination by making the use of the most streamlined and cost effective procedure. The logistic side of the company keeps in check different aspects of the production process such as keeping in check the inventory levels along with tracking its direct position in the process flow. It is also the duty of the logistics and transportation department to find the most cost effective means of transportation and to account for accurate transportation times (Barone, 2009). The cut throat competitive environment and increasing rate of inflation these days has enforced on the organizations the necessity to stay on top of everything. Now, the primary goal of all the organizations has become minimizing costs as well as maximizing the profits. As a result of which it has become vital for the organizations to keep in check all the regulatory functions to balance out the cost effectiveness side of the equation (Barone, 2009). Literature Review: Logistics is a term that got recognized in the 1950s. The trend of nationalism and globalization has been one of the most essential triggering factors to its initiation. In terms of the industrial organizations, its main purpose is to optimize the existing production and distribution processes using the same resources based on such management techniques that promote maximum efficiency and gives a higher competitive edge (Taylor et al, 2005). The key element in the logistics chain can be said to be the transportation system. Transportation is a function that joins separated activities and occupies one-third of the logistic costs. That’s why the impact of it on the logistics system is considered to be huge. From collection of the raw materials and the manufacturing of the final product, to the distribution and achievement of final returns; transportation plays a vital role throughout. The achievement of maximum benefits can only be fulfilled by the streamlined flow and a good coordination between all the functions being performed in the organization (Taylor et al, 2005). Previously we have stressed enough on the importance of the role of transportation factor on the logistic costs. Pertinent now is the utilization and implementation of such logistical activities that contributes to the effective supply chain management. Transportation is one area which has a tendency to add to the unnecessary supply chain costs. For instance the cost of the transport operation can be escalated by inefficient load planning which might also have an impact on the customer service levels. Ineffective scheduling or routing of the products can also impact the transportation costs. Similarly, ineffective and inefficient transport and even the wasteful ware house management, in relation to the production process can be detrimental to the supply chain processes. In view of all that is mentioned above we can redefine the work of transportation component of the logistics from meeting low cost and high efficiency to meeting elevated service requirements and increasingly lower costs to provide a strategic edge (Olayinka, 2010). Logistic cost analysis is one of the key managing logistic functions which makes it all the more essential to consider all the related logistic costs. The efforts of the organizations should be concentrated on minimizing the total cost of logistics instead of minimizing the cost of each component but even that can be a complicated procedure and needs to be given its due consideration (Olayinka, 2010). The organizations often approach the logistics cost reduction by supply chain optimization. Supply chain optimization inculcates the planning to ensure that the demands are being met and the supply limitations are minimized in order to provide an acceptable level of customer service (Olayinka, 2010). Customer service, as considered by some, is the fuel that drives the logistic supply chain engine. The core principle of the concept of customer service is also the provision of the right product, at the right time, in the right condition. However, it has been observed that in the 1980’s the focus of the policy makers shifted from cost reduction to solely in the improvements in the customer service area which in turn greatly affected the supply chain assets and the costs in the supply chain, greatly slowing their rate, hence affecting the performance levels.(Olayinka, 2010). Hence all the more need to focus in the cost reduction area as it does have an impact on the overall performance level of the organizations. There has been an extensive turn around in the transportation and distribution sector in the last decade with the realization of the transport function as having major impacts (Olayinka, 2010). The need of the time now is to optimize the strategic planning of the organizations as such that it is aligned with the routing and scheduling for effective transportation and logistics cost optimization to achieve the desirable level of customer satisfaction and lower costs. Conclusion and propositions for decreasing transportation/logistics costs: In order to keep in check the logistics and transportation costs following, a few measures that can be taken for the cost efficiency are given as follows: One should not just rely on the traditionally set procedures when it comes to the functioning of different operations of the organization. Same is the case for handling the costs incurred. Constant market rates should be checked to stay on top of other more economic options available. Also, product delivery coordination has to be streamlined as it also has an impact on the freight costs (Koovappadi, 2007). In addition to that the shipping and receiving processes should also be streamlined as they do have a tendency for providing substantial savings. Effective use of the technology can also play a vital role to keep a check on the transportation/logistics costs. For instance, it immensely contributes in the reduction of paperwork. Also it also plays a crucial role in the coordination activities which in turn helps in making the processes more streamlined; helping the organizations to keep a check on their costs (Koovappadi, 2007). Fewer delays in border crossings, on-time delivery, increase in the customer satisfaction and adequate inventory levels, all can be achieved by automated compliance processes (Hart, 2010). Domestic resources present should be considered in preference to sourcing them from abroad as it will definitely be more cost effective in the long run. Also, additional focus should be made on eliminating the variability of costs from transit times. The business must have a clear understanding of the dynamics concerning the contributing factors related to the costs as some times paying higher fright costs to ensure higher variability can actually help in saving the total costs of the business (Hart, 2010). If the business has multiple suppliers in a country, all the goods should be accommodated in one shipment. Also if the company’s insurance covers shipment of good then they don’t really need to add the extra cost of carrier’s insurance. The decisions for the transportation/logistics related deliveries should keep in view the most cost effective way of transportation according to the requirement of the goods going through the process flow. We know that the rail is more cost effecting than trucking or air travel. Also, water shipments are more economical than air shipments. But one has to keep in mind the time factor of the required goods along with the cost issues when it comes to such decisions. The businesses should also be aware of the non-tariff trade barriers as such restrictions can also bring increased costs and more reliability issues to the company (Hart, 2010). When it comes to shipments the business should also keep in mind the option of comparing and counter offering the rates provided. It should also go for a negotiation for the lowest possible bids (Le, 2010). In transportation agreements the companies should also confirm the rates offered along with keeping a regular check on the terms of the filing. In case of agreements that are prone to market shifts, the business should make a point of pressing the other party to honour the rates quoted for at least 30 days (Le, 2010). References Barone, M. 2009. Reducing costs in freight transportation and logistics while improving customer service quality. Ezine Articles. Retrieved on 11 Oct, 2010 from http://ezinearticles.com/?Reducing-Costs-in-Freight-Transportation-and-Logistics-While-Improving-Customer-Service-Quality&id=2273448 Taylor, M., Tseng, Y., Yue, W. L. (2005) The role of transportation in logistics chain. Proceedings of the Eastern Asia Society for transportation studies, 5, 1657- 1672 Olayinka, A. (2010) Analysis of transportation costs in overall logistics costs. European journal of scientific research, 44 (3), 420- 429 Le, A. (2010) How to reduce logistic costs on transportation, eHow, Retrieved on 11 Oct, 2010 from http://www.ehow.com/how_6558349_reduce-logistics-cost-transportation.html Hart, B. (2010) 10 tips for reducing logistic costs, The journal of commerce, Retrieved on 12 Oct, 2010 from http://www.joc.com/2010/10-tips-reducing-logistics-costs Koovappadi, E. (2007) Logistics cost reduction- best practices. 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